India’s Telecom Reforms Story with Dr. Rajat Kathuria
Exploring the Evolution, Impact, and Future of India’s Telecom Industry
In this episode, journalist Puja Mehra is joined by economist Dr. Rajat Kathuria to explore the evolution of India’s telecom sector. From the early days of competition and spectrum allocation to the challenges faced by both new and legacy operators, Dr. Kathuria discusses the regulatory hurdles and the shift in policies that shaped the industry. They also examine how the telecom sector has driven India’s digital transformation, enabling advancements in payments, startups, and citizen services. Finally, Dr. Kathuria shares insights on the future of telecom, suggesting potential reforms in spectrum allocation for a more streamlined and efficient sector.
ABOUT DR. RAJAT KATHURIA
Dr. Rajat Kathuria spent over 12 years with the International Management Institute (IMI), New Delhi, teaching post-graduate students Managerial Economics and International Trade. He has also previously worked with the World Bank in Washington D.C. as a Consultant, and worked on research assignments for a number of international organizations, including the International Labour Organization (ILO), United Nations Conference on Trade and Development (UNCTAD), LIRNEasia, The World Bank and The Asian Development Bank (ADB).
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Puja Mehra: Hello, I'm Puja Mehra. Most of us have experienced or heard of how difficult getting a telephone landline is to be in India. We've also heard of India's telecom revolution after the sector was opened up to private players, and how so many Indians now have mobile phones, which they use for watching YouTube, shopping online, doing business, transferring money digitally, so on and so forth.
To discuss this story of reforms, I have on the show today Dr. Rajat Kathuria, Dean School of Humanities and Social Sciences and Professor of Economics at Shivnatha University. I really don't think there is anyone in India who understands the telecom sector better than Dr. Kathuria does. Should we start right at the beginning where the de-licencing took place?
Rajat Kathuria: Sure. Telecom de-licencing or inviting a private sector investment started sometime in the mid-90s. This was just after India had opened up in 1991, where the licence raj was dismantled to a large extent, and this was all related to the product and services markets, mostly product markets.
Telecom was sought to be de-licenced and reformed in 1994, which was the first invitation for the private sector to come in. There was a lot of interest because India had reformed in 1991, per capita incomes had begun, GDP had begun to rise, per capita incomes had begun to rise as well. India was a monopoly in the telecom sector, but it was felt that given the trajectory, given the population, given the middle class, it was felt by the private sector, both in India and abroad, that India's market was very lucrative and there was interest in India's market.
And I think there was some amount of pressure that was also put, geopolitical and strategic pressure that was put on India to reform the telecom sector. And hence, we got the first telecom policy of 1994, which basically stated that the needs of India, the telecommunication needs of India are unlikely to be met by the public sector alone. And therefore, there was a need to invite private sector investment.
And this private sector investment included both Indian companies as well as foreign companies. But as it was, there was no Indian company which had the ability or the experience to run a telecom network. And therefore, most of the bidding that happened for the licences, right in the beginning, was from private foreign companies, AT&T, Belgiacom, Sprint.
So all the foreign companies were interested in coming to India. And so really that set the tone for private sector entry into the Indian market. There was an Indian company called HFCL that also bid.
And I think the first bidding itself set the tone for what one was likely to expect in the future in the telecom sector. And by that, I mean that India was so much of a must-have market for most players that they felt that they could bid anything, get entry, and then work their way through the system to try and renegotiate what they had bid. I have this from sort of pretty reliable sources.
It was indeed the bidding strategy in the beginning that, you know, India was a must-have market. We'll get in. And if we are unable to honour our commitments, then we will negotiate with the Indian state.
This was, you know, mid-90s until 1998 or late 1997, when the need for a telecom regulatory authority was felt in India. The initial liberalisation happened without there being an independent regulator in place. So it created, you know, problems.
And then, you know, people said, stakeholders said, how can you have private sector operators in the country without there being an independent regulator? And how can private sector entities be regulated by a public sector, which is also the policymaker, which is also a service provider, and which is also the de facto regulator? There seems to be a massive conflict of interest.
And as has happened subsequently, this was a matter that was resolved by the court, in fact, by the Supreme Court, which pronounced judgement saying that you regulator while the public sector operator is also functioning in the market. So I think the first phase of liberalisation itself was a learning experience. And I think we've learned a lot from that experience.
Puja Mehra: When did these bids come in? And what was the outcome?
Rajat Kathuria: So the bids started coming in, in 1995. And a lot of these companies actually bid a lot, they bid much more than they could pay for the reason. One reason was, as I've mentioned, one reason was that India was seen to be a lucrative market.
But the problem that happened was that while India was a lucrative market, I think the initial pricing was a bit flawed, especially for the mobile telephony. Mobile telephony was seen like, let's say, a passenger car, a luxury passenger car. It was seen as a luxury good.
Believe it or not, when we think back to the mid-90s, and you think what mobile telephony has become today, and you think back to the mid-90s, it was really a luxury good. And the price, it was very easy to buy a telephone in the sense that the rental was only 156 rupees, which was set by the policymaker. But the usage charges were exorbitant, both for incoming as well as for outgoing.
So you had to pay for incoming, for receiving calls as well. So the pricing was such that it did not encourage usage. It encouraged people to buy a phone because it became a status symbol.
It became like a Mont Blanc pen that you would show off at dinners and at cocktail parties. Something that you had. It was like a luxury good.
But it didn't encourage usage at all. So the bidders would come in, companies like Belgiacom, companies like Swisscom, companies like AT&T. And then, of course, there was companies like HFCL, which overbid.
And then they had bid for nine licences and they were then ultimately given over two licences because the court decided that they were going to be unable to pay the licence fee for nine circles. And so the court decided we would allow them to enter only in two circles. And for seven of their circles, the bids were revoked and given to somebody else.
And I think this scenario that I'm describing to you was reflective of the fact that India had liberalised and therefore people wanted to, investors wanted to come in, companies wanted to come into the telecom market. But they had no idea about how the market would evolve. They just had a gut feel that India would be a lucrative market.
And unfortunately, that didn't pan out the way they had forecast. And one of the reasons it didn't pan out, as I said, Pooja, was because the pricing was distorted. There was a rental and there was a usage charge.
The rental was very low, as I said, but the usage charge was exorbitant. So you bought a phone and didn't use it. So you couldn't pay your licence fee because usage was so low that operators were not making money.
Add to that, the phones themselves were expensive at that time. You had mobile phones, which were very large pieces of equipment. Sometimes the mobile phones could be as large as the landline phones at that time, except that they were mobile.
They were more mobile than a wireless phone that we had at that time, a cordless or a wireless phone. They were bulky pieces of equipment that were very expensive. So you had the expense of buying a phone.
You had the expense of paying for every call you made and received at 16 rupees 80 paisa per minute. That was huge. And therefore, that didn't encourage usage.
And that really meant that the operators who had bid in coming to the Indian market were unable to honour their licence commitments, licence fee commitments to the government of India.
Puja Mehra: Is it that the policymakers had assumed that tariff plans would sort of evolve out of, there would be a price discovery in the market? Why was there no proper benchmarking?
Rajat Kathuria: There was no regulator at that time. So these prices were pretty much set by the Department of Telecommunications, who was the policymaker, service provider, as well as a regulator, all rolled into one, pretty much like the Indian railways at that time. And these prices were not pulled out of a hat.
They were pulled out of a bidding document of a certain potential entrant. And these were felt to be the most sort of relevant for the Indian market. And that then became the standard for the rest of the industry.
So this rupees 156, which has become folklore in the Indian mobile industry, in the Indian mobile market, and 16 rupees 80 paise for peak, 8 rupees 40 paise for off-peak, and for 4 rupees 20 paise for the ninth time tariff charges. So this was the triumvirate of tariff charges. And the rental, as I said, was 156.
These were pulled out of a licenced bid document, DOT, the winning document, and then made common across the industry. There was no real thought put into it. It was what had been bid, and it was the winning bidder in a particular circle, and that was made applicable to everybody.
So there was no real sort of thought by the regulator or Department of Telecommunication at that time, whether there could be alternative pricing methods allowed, or whether this would be a package that would be made available in addition to some other packages. That was all done later on by the Telecom Regulatory Authority of India that came into existence in 1997 November, following a pronouncement by the Supreme Court that you have to set up a regulator. The regulator was also quickly cobbled up.
I remember the first regulator didn't have a place to sit, didn't have office furniture, you know, computers were ordered, and printers were ordered, and the packages of the printers and computers used to double up as seats for guests who would come in to the office and want to discuss aspects relating to the telecom sector. I'm not joking, this is how, because the regulator was just put into place, and it was pretty much as we moved along, or as the regulator moved along, you were fixing things, like, pretty much like driving, fixing an aircraft where you're actually flying it.
Puja Mehra: You said the first regulator, was this TRAI or was this an earlier avatar of TRAI?
Rajat Kathuria: Well, the first regulator pretty much was Department of Telecommunication, as I said, but the first independent regulator was TRAI that was established in 1997 by the government, following a decision of the Supreme Court. And I say it is the first regulator because soon after it began functioning, the regulator was actually dissolved in 1999. So, the first TRAI had a very short tenure of a little over, I would say, two years, and then it was dissolved and a new regulator, TRAI Mark II, was created in early 1999.
Tell us about that. So, the reason why the sort of TRAI Mark II was created, I think, was there was no experience of independent regulation in the telecom sector. In fact, there was very little experience of independent regulation in any sector in India because we were sort of a licenced large economy, and there was almost no competition or private investment.
So, you didn't need independent regulators. So, when private investment came into the telecom market, remember the Department of Telecommunications was offering telecommunication services. There weren't even at that point in time.
They felt that telecommunication was their preserve, it was their turf. And I remember conversations with officials from the Department of Telecommunications, which later became BSNL, and which today is known as BSNL. They used to say that, you know, if private entry is happening, private entry is happening because we are unable to provide, you know, cover the entire India.
So, where we cannot provide services, it's our prerogative to provide services. This is our mandate. The Government of India has given us the mandate.
Where we cannot go, the private sector will go there. It's not as if we are competing with the private sector, they are meant for areas that we cannot serve. That was the sort of view, and it was a serious view within the Department of Telecommunication.
And it was a pervasive view that private sector would not overlap in areas where we were providing services. So, when TRAI came into existence and began to issue directions, both to the private operators as well as to the public sector operator, the public sector refused to accept many of those decisions and orders. It felt that it had the power to decide tariffs, it had the power to decide a technical aspect of telecommunication sector, which is critical to the competition in the sector, which is called interconnection.
So, the Department of Telecommunication felt all these were its preserve and that TRAI had no right to tell the government because remember, the government was the private sector operator. So, it was doubling up as the government should. TRAI had no right to direct the government because the government in essence was also the operator.
And it felt all its rulings, all its decisions were meant only for the private sector and that the public sector would decide its interconnection charges, it would decide its own tariff and it would decide the price of calls that were terminated in the public sector by the private operators. Remember, if you are to run a telecom network, you have to terminate calls on the largest network. And at that time, the largest network was the public sector.
And if the private sector entry was to become profitable, they needed to terminate calls in the public sector network. And that tariff itself, astronomical tariffs, mobile to PSTN, public switched telecom network as the fixed lines were called by the experts in telecom, PSTN network. So, mobile to PSTN call, the termination was decided by the DOT and what the DOT did was pretty much a dirty trick.
They made termination rates so exorbitant and made the originating operator pay those terminating rates so that pretty much it became, you know, unprofitable for anybody to terminate a call on BSNL and therefore the private sector terminated a call on BSNL. Basically, they made life very difficult, not only for the other competitors, but they made life very difficult for the regulator because they challenged every decision of the regulator in the High Court. At that time, the Court of Appeal was the High Court.
The first telecom regulatory authority of India also had adjudicatory powers. It was not only an administrative body, it was also a body that decided disputes between telecom service providers and there the government operator also said TRAI cannot decide a dispute between a government operator and a private sector operator. It can decide disputes between private sector operators but we will decide our dispute ourselves because we are government.
TRAI has no role to decide a dispute between DOT in its role as an operator because we are a government operator. So, these were issues and the law itself, when it was first written, the law itself did not anticipate this. The wording of the statute was such that it left a lot of grey areas and the people who laughed all the way to the bank during that time, if I were to use that terminology, were the lawyers, the telecom lawyers.
They laughed all the way to the bank because at the drop of a hat, the public sector would go to court challenging TRAI's decision and I think the government got tired of this. Constant litigation and the government got tired of this because obviously, TRAI had both administrative powers and adjudicatory powers at that time. The government, sick and tired of it, decided to dissolve the regulator, Mark 1, TRAI Part 1.
The kind of last straw that broke the camel's back in some sense was a decision or an order of the TRAI which said that they were going to introduce what is called calling party pays regime in which the terminating operator would get no revenue, but the revenue would be decided by the interconnection charge that was going to be determined by TRAI. So, the terminating operator was an incoming fee and that the termination charge itself would be determined by the telecom sector regulator that was TRAI. That was one major dispute that occurred and the second major dispute was TRAI refused to allow MTNL to offer mobile services saying that MTNL did not have a mobile licence.
And believe it or not, Pooja, I'm not joking, when the history of telecom is written, MTNL responded by saying that we already have a mobile licence because we provide radio telecom services. You remember those telecom services that are provided in cars? Those are mobile services and we have a licence for that because the government has given us a licence to provide telephony for important people, government people, security, etc., in vehicles. You had those white ambassador vehicles on which you had a red light on top and they had mobile telecommunications equipment in them. And of course, as I said, it could become folklore now, it could become legend that MTNL actually said, we have a licence and that radio licence will allow us to offer telecom services. Of course, then the government eventually gave them a licence to offer telecom services, but at the time they started mobile services, they used the pretext that they already had this radio licencing, which could be used as a mobile licence.
So, you know, these were, everybody was uncertain, the law wasn't clear, there was a lot of litigation, people were trying to preserve their turf. Of course, the incumbent was behaving like a monopoly, preserving it, not providing interconnection to the private sector operators, not willing to carry their calls, making all kinds of excuses, basically pricing them out of the market, behaving like a big bad monopoly. And we know how big bad monopolies behave, including in the private sector.
And they did all those things to prevent profitable private sector operation. Even after the TRAI had come in, there was constant litigation. And as I said, these were two cases, the calling party pays and MTNL beginning to offer mobile services without a licence that TRAI said, you can't offer these services.
And, you know, the government operator took TRAI to court, the TRAI took the government operator to court, there was also all sorts of litigation. It was a mess. And I remember Mr. Jaitley, who was around at that time in the government, decided that TRAI was going to be dissolved. And I still remember the speech that he made, which was televised. And he said something very interesting, because he said that TRAI had to be divided into two bits. One was TRAI that would do pricing, policy advice, and interconnection, which was administratively decide what the need and timing of the service provider would be, recommend to the government spectrum pricing, decide on tariffs, decide on interconnection.
But it could not adjudicate disputes on rules and decisions that it had made itself, i.e. TRAI cannot sit on judgement on its own decisions. And Mr. Jaitley, who himself was a lawyer, was very articulate when he said this, and he said CISA cannot sit on judgement on CISA. And therefore, on a rational basis, in some sense, one could argue that that was a decision that was well thought out, although there are regulators in the world that have both administrative and adjudicatory powers.
But even so, it was a decision that you could justify. And that gave rise in 2000 to another body in the telecom sector, which was called the Telecom Dispute Settlement Appellate Tribunal, that we know as TDSAT, and TRAI Mark II, which was a body which would do only administrative functions, like I've outlined. And another interesting thing that happened in that bifurcation of TRAI and TRAI Mark II was that the term of the authority, which was headed by a chairperson and members, five members, I think now it could be seven members, including part-time members.
Collectively, this body is called the authority. That is the authority. And then they have a secretary.
So the authority's term in the first TRAI was five years. And I remember the first chairperson was a judge because it was also an adjudicatory body. Remember, as I just...
The first chairperson was a retired Chief Justice of the Punjab and Haryana High Court. His name was Justice S.S. Sodhi. But he had to demit office because they dissolved the TRAI into two bits in 2000.
So we had the TRAI Mark II and TDSAT that came into being in 2000. So those were the first few years of private sector entry. Not much of private sector entry happened, I think.
But some rules and regulations became clear. And I think the private sector and public sector began to realise that they had to live together. And they were sort of going to be there for the long term.
And while they would compete with each other and exploit whatever tufts they had to exploit, especially the public sector, I think there was a realisation that the government was keen on private sector participation because the needs could not be met by the public sector alone. That was clear. And also, that unlike the opinion or the view of the public sector, that private sector should not compete directly with it and remain and isolate itself to areas where the public sector wouldn't go, that view soon, they were disabused of that quickly, so that they began to expect that, yes, they had to now learn how to compete with the private sector operators.
So I think things became a little better post-2000, but there were still tufts and litigation continued to happen.
Puja Mehra: But why did they have to sort of learn the ropes as they went about it? As in, they had to learn why operating this sort of induction of private sector into a market that had been completely dominated by the public sector. Were there no international models that they could have followed
Rajat Kathuria: There were so many models. I mean, the model that was staring us in the face, which is still, I would say, even in 2024, I would say is something that we could learn from. It was the model of British telecom.
And I must say this on this programme, Pooja, because it is something that we can still learn from as a telecom destination or a telecom market that is the second largest market in the world with intense private sector competition. And I think that view at that time, that model that was available to the public sector, BSNL, MTNL, was that, look, we recognise that we are not good enough. And good enough, I'm not using in a derogatory sense.
Everybody has their core competence. MTNL and BSNL core competence, I still think lies in networks, lies in creating a sort of infrastructure in optical fibre cables that can span the length and breadth of the country. And British telecom had done exactly that.
British telecom felt when private sector had come into Britain, they felt that they were not going to be the most agile to the customer, but they would be better at wholesale services, which includes lease circuit, telecommunication, infrastructure. That's what they would provide best. And leaving the sort of contact with the customer or last mile to private sector operators.
So there was a lot of sort of networks that were developed by British telecom and then leased out to the private sector who would then compete with one another in the last mile with the customer. And I think that's a model that is still relevant for us if I were to cut to 2024 very quickly from the early 2000s and say that that is a model that BSNL should actually adopt even today. Of course, there is political economy.
BSNL is a large employer. MTNL is a large employer. And therefore, there's money on redeployment of the personnel, the officers and staff that work there.
Without getting into that, I mean, as an economic model, BSNL is not very good at providing last mile services to the customer, the quality of service, the quality of the internet, etc. Of course, they say they provide services where private sector still doesn't go to in rural areas. But BSNL's core strength would be to get that Bharat Net, which has been languishing.
And I use this word languishing, again, not in a derogatory sense, merely to say that this Bharat Net or National Optical Fibre Network was conceived in 2011. We are sitting in 2024 and we still haven't covered the 256,000 panchayats that we wanted to cover, the villages that we wanted to cover. We're still sitting at about 170,000 or 180,000.
And it's been a long time. And if BSNL focusses on infrastructure, the Bharat Net, you focus on that and you sell your equipment, you sell your optical fibre cables, do the wholesale operation, get out of the customer facing, because customer facing is something that it'll be very difficult for BSNL to compete or MTNL to compete with the HLs and the GOs and the Vodafones of this world. So, I mean, as I'm saying, I'm not using this term that they're not good enough.
They are not good enough for the last mile, I think.
Puja Mehra: Yeah, they have a core competency that they have to focus on, but that involves for them to give up certain economic controls that they were used to. But I suppose it is the job of the political bosses to make them see that and make them do it, which is so many years later, so it's not, as you're saying, happening.
Rajat Kathuria: Absolutely. It's political will. I mean, look at the example of Air India.
Air India ultimately had to be disinvested and then privatised, because, you know, the government was looking at Air India and it was pouring in money, it was like going down a well, and they had to continue to pour in money.
Puja Mehra: I think in the last five years, it's already consumed four and a half lakh crore rupees from the budget, because they need budgetary support. They can't survive in this market. And MTNL, being a maharatna, is on the verge of sovereign default, because, you know, their default is as good as sovereign default.
They've been declared a non-performing asset by the State Bank of India. So, yeah, they're clearly not managing very well and probably refocusing is the way forward for them, if the political bosses can make them do it. But to follow the chronology, so then comes the phase of de-licencing.
The first sort of reform is kicked off by Mr. Shourie, if I'm not wrong.
Rajat Kathuria: So, the national telecom policy of 1999 came in, in which the new regulator was created. And then, of course, there was a major change also in the new telecom policy of 1999, which is the bids that we were speaking of a little earlier, the unsustainable bids that were made by the private sector they couldn't honour because the Indian market didn't give them the sort of revenue that they expected. Those bids were then migrated to what was called the licence fee sharing regime, based on adjusted gross revenue, AGR, the definition of which has reached the Supreme Court in recent times.
So, the migration package was signed and that, I think, provided some much needed, I think, incentives to the private sector operators. So, that happened. And then subsequently, in 2003, I would say, the calling party pays regime was finally introduced, which then led to a huge uptake in mobile telephony.
Meanwhile, PRAI got rid of those 156 rupees rental and 16 rupees of incoming fee as a result of calling party pays. So, the tariffs were rationalised. The rental was made a little higher, but the tariffs were rationalised.
And then uptake of mobile began to happen post 2003. And then the uptake continued. And I think at one point in time, in 2007-08, India, because of competition, because new operators came in, Tata's also came into the market.
There was a time when Hutchison was also there. There was Vodafone, there was Bharti, there was Reliance. The first Reliance that came in as wireless and local loop.
That was another sort of episode, a defining moment in India's history, where Reliance came in as a fixed line operator paying low licence fee, but used their fixed line to say that we can offer, technology can offer within 50 kilometres, wireless and local loop. So, in a sense, their fixed licence became a mobile licence. So, what happened when the telecom sector began to show this unprecedented growth, it also obviously became very, very profitable for operators.
And at that time, TREI had made entry sort of open, and anybody who paid the licence fee would be given spectrum along with it. So, the spectrum wasn't sort of divorced from the licence. If you got the licence, then you would get some spectrum as well.
And that brought about the sort of next bunch of litigation in the telecom sector. And that happened because, I mean, a lot of operators, a lot of investors who didn't have telecom experience applied for a telecommunications licence when DOT opened up the telecom licence with the payment of, as I said, 1650 crores, and you would get a bundled spectrum along with it. And when this was open, the number of bidders really surprised the telecom department.
So, they had to decide how are they going to sort of give the, obviously, they couldn't give licence to everybody. There were so many applications, and they had to choose between the applications. The profit or the spectrum that was bundled with the licence was the asset that most of these investors without telecom experience were after because mobile phones, mobile telephony was growing in an unprecedented manner.
Puja Mehra: On the point of Vodafone and Jio, I had two questions. One is that, can it be said that there was a level playing field in the market between Jio and the legacy operators, as you're saying, because they were subject to different periods of time, different set of regulations. And if it is so, then is it incumbent on the regulator or the government, the policymaker to introduce some rules which sort of reduces the difference or levels the playing field between the new entrant and the legacy players?
Is that something that should have been done?
Rajat Kathuria:
Yes, I think the government has tried to do that. You know, it depends on who you ask. If you ask somebody from Vodafone, they'll say, the playing field is not level and we are subject to a lot more regulatory costs than others have been subject to.
They would certainly say that. But if you ask somebody else and say, yes, the playing field is level, it really depends on who you are asking. And I'm not trying to dodge your question.
I'm saying that there is enough of contestation in this space. There is enough of grey area in this space to be able to make the argument either way that the level playing field or the playing field is not levelled between operators. In the past, it hasn't been sort of levelled.
Going forward, I think the government is doing everything in its capacity. If you just internalise the cost, the licence costs and et cetera, the government is trying to do everything to make it level now. Everybody is subject to the same spectrum usage charge.
Everybody is subject to the same licence fee spectrum in the open market. So going forward, yes. But these decisions that were taken in the past, that you converted your limited mobility licence into a full mobility licence, you gave spectrum on a first come, first serve basis.
And there was sort of, there was a lot of suspicion on how you gave, how you determined first come, first serve, et cetera. So those legacy issues, you know, cannot completely be addressed as some of them have been addressed. But going forward, I think in the telecom sector, they're unlikely to be, as far as I can see, there's unlikely to be different sort of treatment among the private operators.
As it was in the past, there was differences in the way private operators were treated. And one can say that in the past, and it's taken a while to level that playing field among private operators. And depending on who you ask, you will get an answer whether it is level or not at the moment.
But going forward, I think among private operators, I don't think there'll be any disparity in the way they are treated by the regulatory regime. However, there could be between private sector and public sector, there is sort of disparity in the way they're treated. And there are reasons for that, as we've said earlier on the show, there are reasons because the government operators, the public sector operators, BSNL, MTNL, have a specific mandate given by the government.
They're given the spectrum without having to bid for it. Sometimes the government charges them for the spectrum, sometimes the government doesn't charge them for the spectrum. So that sort of, it's open how the public sector is treated.
And the public sector would say that I have to operate with one hand tied behind my back, because I have all these obligations, which private sector doesn't have. So and the fact that I'm getting, I don't, I get spectrum free is because I have these other obligations. So there's some sort of levelling of offsetting of the benefits with the costs associated with the public sector operator.
But I mean, one can go on and on and argue about this. But I think a good solution for the public sector in telecom would be, as we've said earlier, is the private sector should, the public sector should consider exiting at least the retail space.
Puja Mehra: And to sum up on the whole India's telecom story so far, which will probably determine what happens next in future. How has it played out? You know, we celebrate a lot how fast, how large the market has grown.
It's been a very messy process. I mean, like you've said, it could have been so much smoother. Are we now at least seeing signs of the policymaker and regulator learning from the past?
Is it likely to be a little better? Or are we still not on top of getting things right?
Rajat Kathuria: I'm an optimist. I'm a perennial optimist. And I think we've finally reached a steady state in terms of regulatory engagement with the private sector.
I mean, there are some issues, but which are more political economy, as we've been saying. But I think we've reached...
Puja Mehra: But it's always the political economy in India.
Rajat Kathuria: Yes. I think we've reached a regulatory steady state in which the mistakes of the past will not anymore. I think those drastic, those mistakes that were made will not be made.
And let me sort of explain what I think. So it was a messy process, like you're saying. It was a tumultuous process, because it was also learning experience, the most valuable resource in telecom, as we know in today's spectrum.
And we gave away spectrum almost without charge. And then we recognised that it was a huge resource and that we could use it for rent seeking, for the government, for the treasury, which the government has done. In some sense, the government has also been extracted, not only in spectrum free, but in some sense, in the telecom sector.
But the telecom sector itself, I think today, it would have been at a much better stage in the two decades that we've been speaking about. Of course, had we learned earlier, had we taken some quick decisions, maybe it would have been a better state. If you ask me, what have we lost?
We've lost sort of deployment to 5G, which would probably be up and about. Today, we still dominated by 4G. We would have had 5G in the market, just like some other countries do, because our telecom sector is moving very, very rapidly.
So we could have moved rapidly on 5G as well. Today, the kind of technology that is available in Korea and the United States simultaneously is available in India. So in that sense, we've lost some time because of the regulatory mess that we've created.
And the telecom sector, as we know it, it doesn't, no longer for its own sake. I mean, we've always known this, but that is much more evident today. Telecom sector is an enabler today, much more for automation, for driverless cars.
Think about it, you know, technology or automation, UPI, these fantastic things that have happened in India along payment systems and direct benefit transfers and the linkages with banks. These are fantastic. These are sort of unbelievable efficiencies that have been created.
And the driver has been pretty much the telecom sector.
Puja Mehra: The credit should go to a private player and not the regulator, the policy maker.
Rajat Kathuria: The private players have done phenomenally in this space, absolutely. But also, I think regulation has learned, but the private sector has stayed because they have, I mean, Vodafone could well be, you know, within its rights to say that, look, you know, I am getting up and, you know, selling and going off, right? Of course, there are benefits for them, there are profits here.
It is one of the most profitable, likely to be one of the most profitable, if not today, but in the future, India could be a very profitable market for them. It's the second largest market for them after their home country. So it is a very large market for Vodafone.
And so telecom is an enabler of these fantastic, you know, services and overcoming to a large extent the deficiencies that we've had in citizen services, you know, for simple services that we today don't have to visit offices and we get delivered on our fingertips. And you cannot imagine because this generation hasn't seen that, but my generation has. And the amount of transactions costs you could incur by just going to certain offices and spending hours trying to buy a railway ticket or paying your paying your bills or electricity bills or water bills or trying to get money out of a cash machine or going to a bank and waiting in queues to deposit.
I mean, it is incredible the kind of transformation that India has witnessed on the back of the telecom sector. So, you know, we've done a lot of work when I was in Icrea, we did a lot of work on digital dividend story, which is no longer is told, but I think it's waiting to be told again in a new avatar, which is that, you know, a 10% increase in telecom traffic or a 10% increase in mobile telephony would give you a 1.5 or 2.5 impact on the GDP of the country. That's huge.
And I think that narrative, that story is probably ready to be told again, just expanding telecom or expanding digital to the India stack, to the payment systems. You know, what have these done to growth or GDP in the Indian economy? And I would suspect that the impacts it is having are very large because the cost savings are enormous.
So I think that story is waiting, that narrative is waiting to be told in the Indian context. So telecom is clearly, I mean, discounting the costs, discounting all the messes that we've been through. We've learned a lot.
We could have learned area, but the kind of impact that it's had on the lives of people, on the lives of students during COVID, on the lives of people who are not used to, you know, the traditional way of doing business, it's enormous and it's giving rise to startups, to unicorns, et cetera. So I think we're in a good space and telecom is clearly leading the way. And there was one more thing at the end I would like to say is that, I mean, in the future, there's of course, convergences upon us.
And I think there is some amount, I wouldn't say obsession, but there seems to be a view, a given view that you're not willing to discuss or bring to the table, which is spectrum has to be auctioned. And I think that can be rethought to a large extent, because I don't think there are going to be new players in telecom other than what we see. You could have mergers, acquisitions, et cetera, but plain vanilla, completely new players like Jio in 2016 is unlikely to happen.
So you can think of administrative ways of allocating spectrum without going to that costly process of auctioning. And I think what we are doing for satellite broadband will be a good sort of learning experience, would be a good experiment for the telecom sector. For satellite, I understand if they're going to give it out administratively to satellite players, that's not going to be auctioned.
So that could be a testing or learning ground for whether we can do the same for telecom spectrum. And if that learning, I think the executive would have learned from the past experience and would deploy all that experience, including what we have in satellite, so that we can now also do the same thing with telecom spectrum.
Puja Mehra: I hope so. I hope so. Thank you. Thank you so much.
Rajat Kathuria: Thank you, Puja. Thank you. Joy, pleasure to be here.
